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Compute the net present value and internal rate of return

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Problem - Net present value, internal rate of return, sensitivity analysis - Muskoka Landscaping Ltd. is planning to buy equipment costing $25,000 to improve its services. The equipment is expected to save $8,000 in cash operating costs per year. Its estimated useful life is five years, and it will have zero terminal disposal price. The required rate of return is 12%

Required -

1. Compute (a) the net present value and (b) the internal rate of return.

2. What is the minimum annual cash savings that will make the equipment desirable on a net present value basis?

3. When might a manager calculate the minimum annual cash savings described in requirement 2 rather than use the $8,000 savings in cash operating costs per year to calculate the net present value or inter- nal rate of return?

Reference no: EM132739361

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